Japanese capitalism proved naysayers wrong, scholar says

Japan has successfully modified and reinforced its own economic model — rather than surrendering to the American one — while fighting its way out of the prolonged stagnation it got mired in when the bubble economy imploded in the early 1990s, an American scholar said at a recent seminar in Tokyo.

Japanese companies today retain their traditional long-term ties with employees, suppliers and banks, but have become more selective, diverse and open in dealing with these relationships, said Steven Vogel, an associate professor of political science at the University of California, Berkeley.

At a May 19 seminar organized by the Keizai Koho Center, Vogel said the reforms that have recently taken place in corporate management and government policy defied one of the views most popular at the height of Japan’s post-bubble misery in the 1990s — that Japan would have to radically change its economic model and adopt a U.S.-style form of capitalism.

“Over the past 15 years, Japan neither remained static nor adopted the American model,” Vogel said in Japanese. “It changed in its own unique ways.”

What sets the traditional Japanese model apart from the U.S. model, he said, was that corporations maintained long-term relationships with employees, financial institutions, business partners and the government. These were exemplified by “lifetime” or long-term employment, the “main bank” system, membership in keiretsu, and broad public-private sector cooperation.

Because of the strength of these long-term relationships, Japanese firms refused to cut ties in tough times and instead used their channels of communication to negotiate needed changes, Vogel said.

In contrast with their U.S. counterparts, Japanese firms mitigated layoffs and trimmed wage costs by cutting bonuses and overtime via union negotiations, he said.

At the same time, many companies — particularly in the service sector — increased use of part-time employees. Transfers within or among affiliated companies were also promoted.

Today, more than 80 percent of Japanese companies still observe long-term or lifetime employment, and the average number of years a worker had spent in an employer rose from 10.3 in 1985 to 12.2 in 2003, Vogel said, citing Health, Labor and Welfare Ministry statistics.

While several companies introduced merit-based pay in favor of the traditional seniority-based wage scale, the margin between high earners and low earners is still much smaller than in the United States, he pointed out.

As far as financing goes, companies on the whole refused to part with their main banks or affiliated suppliers and instead took advantage of those long-term relationships to negotiate improved service, fresh support and lower costs, Vogel said.

He said a study he made of 2,500 Japanese firms in various sectors showed that companies in industries still under regulatory protection, such as retailers, tended to be more aggressive restructuring than those in more competitive sectors, such as the automobile sector.

In other words, the competitive firms were more moderate in restructuring because they continued to see advantages in maintaining traditional, long-term ties with employees and suppliers, he said.

To support such changes in the private sector, the Japanese government introduced policy reforms in a gradual manner, instead of radical changes modeled after the more market-oriented reforms in the U.S., Vogel said.

Vogel said he did not agree with the growing perception in Japan that the reforms of the past five years under Prime Minister Junichiro Koizumi have expanded the gap between rich and poor, or between successful and unsuccessful sectors of the economy.

“I do not see a direct link” between Koizumi’s policy and the gap, Vogel said. Economic disparity in Japan remains much smaller than in western nations, he noted, adding that it continues to be a key strength of the country.